Examination of Witnesses (Questions 200
- 219)
MONDAY 25 MARCH 2002
MR JOHN
ROBERTS CBE, MARISA
CASSONI AND
MR STUART
SWEETMAN
200. There is a somewhat strange editorial comment
in the Financial Times on 21 March entitled "Delay
the postal delivery", which argued that rural services more
than cover their direct costs. Even if the competitors chopped
off all of the urban mail what remained would still be profitable.
That seems somewhat strange to me because obviously all of the
urban mail is covering all of the indirect costs, then if the
rural services only have to cover the direct costs when then the
competition comes in and cuts the urban delivery then obviously
the rural delivery will not cover costs any more. It seems strange
that even the FT is adopting a flawed economic analysis of the
Regulator hook, line and sinker. Would you agree that you will
not face competition in your rural services because nobody is
going to go after those and there is this real danger that competitors
will offer a universal service simply by providing 90 per cent
of it themselves and then put a Royal Mail stamp on the other
10 per cent to get cheap rural penetration on the back of fixed
costs?
(Mr Roberts) I cannot see any business trying to set
up a universal service to deliver everywhere. As the Chairman
said and you just said, the likelihood is they will cream off
the bits on which they can make the most profit and leave us to
take the bits which are more expensive to deliver.
201. What would you say to people who are saying
we are waving these as massive job cuts as an excuse behind what
is happening with the Regulator, in the same way some people think
the airlines are chopping lots of job with the excuse of September
11, and using this opportunity to make draconian and unnecessary
job cuts.
(Mr Roberts) The Chairman started off by saying the
Board had been incompetent over the last few years, I do not necessarily
agree with that. The purpose of the changes is to get the business
back into profitability. We have talked about for at least six
months, well before the Regulator put out his proposals, and it
is nothing to do with just regulation, it is to do with our concern
about competition.
202. I accept that you are trying to cut costs
because of the advent of more competition in the EU. Why have
you not provided us with a detailed breakdown of changes in transport
costs, changes in labour costs, changes in acquisition costs,
a proper breakdown of why you find yourselves in these difficulties,
other than the fact that the stamp prices have not gone up probably
enough?
(Mr Roberts) We could do that if that would help.
203. It would.
(Mr Roberts) It would show where costs have risen.
204. I heard a suggestion today that the reason
the Regulator delayed the consultation deadline was because there
was a lack of clarity in terms of what share of the market was
competed with and the reason for it is that you did not understand
your own books?
(Mr Roberts) That is absolutely wrong.
205. You can and will provide a detailed break
down of changes in costs, the quality of idea about how transport
charges, British Rail and acquisition costs, and all of the rest
of it, changed. It would be a useful if we had some breakdown.
As I understand it, correct me if I am wrong, the labour costs
for the British postal service are relatively cheap. That is true,
is not, the labour costs?
(Mr Roberts) The labour costs are compared to the
labour costs—[1]
206. In Germany or Holland. The difficulty is
that the price of stamps is very cheap and you cannot make the
margins you might want to. I do not know whether you can answer
this, do you feel that Postcomm should allow a marginal increase
in stamp prices in order to enable a less painful transition towards
full liberalisation and you can have structural change over a
period of few years in line with EU at a price that the British
public would, we found, certainly pay from the perception of value-for-money?
(Mr Roberts) It is something that we are thinking
about now.
207. Perhaps you should not just think about
it, you should tell Postcomm what you want.
(Mr Roberts) We are thinking about it in terms of
when we put a proposal forward to Postcomm and whether we do this
at the time when we respond to their consultative document. You
are quite right, there has been one price increase on first class
mail in the last five years, and second class mail has gone down
a penny in that period.
208. I notice your income has risen from six
billion to eight billion in five years and yet you have moved
into negative profit, presumably because the price rise has not
kept pace with the cost increase?
(Mr Roberts) Over the last five years our first class
prices in the United Kingdom in real terms are about 8 per cent
down.
209. I want to turn to somebody slightly microscopic,
my fear is the deafening cry of cut costs has been overwhelming
the rational voice of revenue opportunities. In particular in
my own patch, Croydon, East Croydon Station is on a multi modal
transport interchange with people using trams, trains and buses.
I understand the unions agreed to open a post office when people
were going through the station, namely before and after work,
when it is, of course, closed. The idea was put forward, the council
had their own facilities there, the retailers will lend support
to try and make this Crown post office in the middle of a residential
area as well viable. Yet, the response has been no, no we are
going to close it down anyway. Does that not show that at this
time, at least, there is not a mood of looking at revenue opportunity
but, in fact, it is all just get the axe out and chop jobs, that
is not good management.
(Mr Roberts) I am not aware of the details of that.
I would be surprised if it was done purely for that reason. More
often than not we find it is very difficult to make them pay depending
where they are, what the rental is or anything else. If there
was an opportunity to make it pay I would be very surprised if
that is the reason for chopping it. All of us here are against
that for the very reason you say, the whole point is it is much
easier to try and grow revenue than to cut costs.
210. I do not know whether it is easier, it
is something that you should be focusing alongside cost cutting.
On another occasion when I spoke to the Regulator about this issue
of a European market place he said that Postcomm had within its
terms of reference level playing fields and in the same breadth
said that he would not push forward with his proposals if he thought
they significantly damaged Consignia. Do you agree that is a completely
ridiculous position to hold and in an international market place
of liberalisation the Regulator should and must have a view towards
a level playing field and fair competition?
(Mr Roberts) I would like to think so. I think in
terms of the basis on which the Regulator has been set up and
the duties he has I am not clear that that is something written
into his duties.
(Mr Sweetman) His prime duty is to protect the USO
and wherever appropriate to introduce competition. The hierarchy
of duty is very, very clear, his overriding duty is protection
of the USO. Once that is protected, and notably protected, then
whatever appropriate competition can be introduced.
211. Would you agree in short that premature
deregulation of the market and the failure to allow prices to
rise end ups with a situation where the British public would prefer
to see more protection in the short-term as a danger to the basis
service that we enjoy in the United Kingdom and to the whole provision
of post offices across the country?
(Mr Sweetman) Yes.
212. Finally, in terms of the cuts that have
been suggested would you not agree that despite what you said
about not many strikes for six months, given the history and the
nature of the industry do you not think there is every likelihood
there will be a major strike in the British postal service resulting
from these cuts that have come from the Regulator's proposals?
(Mr Roberts) I hope not very much indeed. We have
tried over the last three or four months to talk constantly with
the unions. I believe the unions do understand the serious position
we face and why we are there and what we are trying to do about
it together. I welcome some of the statements I have seen today,
which have been along the lines as long as there is no compulsory
redundancy they want to work with us to try and get the organisation
and business sorted out. I very much hope not, because I think
it would be disastrous for everyone one concerned in the industry
and many, many customers outside.
Chairman
213. I must press you on one aspect of Mr Davies'
questioning, how many of the massive job losses announced today
are due to Postcomm's proposal?
(Mr Roberts) It is very difficult to say that they
are. We needed to make changes in the parcel business, of course
the parcel business is a competitive business and not a regulated
business. Our transport review is just that. I do not think it
would be fair to say that today's changes have been generated
just by Postcomm's proposals. They have certainly been generated
by the fact that since we have become a plc we need to get everything
sorted out so what we have a business which is viable and profitable
going forward.
Chairman: This is very important. Did you not
tell my colleague 5,000, or did I mishear?
Geraint Davies
214. The suggestion I made a note of, was 10,000
from the EU proposals, 5,000 from the early entry Regulator's
proposals and a global total of 30,000.
(Mr Roberts) You were saying, as I understood it,
what might the impact be if we had to take a hit of £750
million, £500 million plus £250 million, as a result
of these proposals?
215. Which is what you say, we do have to take
a hit.
(Mr Roberts) I was saying it was very difficult to
equate that to jobs. If you did a rough calculation it would be
the number I gave you. In terms of today's announcements they
are very much about us getting the cost base of the business right
and it would not be correct to say because of Postcomm's proposals
we have done this and make a direct connection.
216. There are as a result of your historical
position?
(Mr Roberts) Yes.
Mr Gibb
217. Are you inefficient?
(Mr Roberts) How do you define efficient? I can give
you a number of statistics about the amount of mail we handle
per working hour and the way that has gone up over the years.
218. You must know whether you are inefficient
or not? Are you over-manned?
(Mr Roberts) I think we are probably over-manned.
One of the reasons we talked about making changes today is to
reduce that manning and also still maintain the kind of business
and size of business that we have.
219. How long have you been over manned?
(Mr Roberts) Probably for 300 years, I mean as long
as there has been a monopoly. I think the issue about monopolies—this
is the debate about competition—is that a monopoly inevitably
means that you do not have the pressures from outside, you have
only got the pressures from inside and as much as you try and
mirror competition and introduce it internally, I do not think
that is as effective as looking, as we now do, at what our competitors
do. We have now got the two benchmarks, the two privatised post
offices, and we can look at their efficiency. It was that which
led us to make the proposals we did for reducing the cost base
by 15 per cent.
1 Ev, Appendix 2, p 51. Back
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